Commercial property has been in a tight spot for the past two years. It was hit hard by rising interest rates, plus concerns over specific sectors, particularly the office market. The MSCI World Reits index lost 27.8% in 2022 and only recovered slightly in 2023 – rising 6.9% against 21.8% for the broader MSCI World. Nevertheless, there have been tentative signs of growth this year, with the index up 29.3%.

Valuations are improving. In November, UK commercial property giant Land Securities said the value of its portfolio rose for the first time since 2022 in the six months to 30 September, with its retail properties and prime London office buildings seeing a recovery. London office specialist GPE also recorded higher valuations.

European commercial real estate valuations seem to have stabilised, with interest rates falling faster than elsewhere.

There have also been some big deals, which suggests growing confidence in the market. Private equity group Starwood announced a £673.5m acquisition of the Balanced Commercial Property Trust in September, while listed warehouse group Segro bought Tritax EuroBox’s assets for £553m in the same month. There has also been significant consolidation among real estate investment trusts (Reits).

This is the complex backdrop facing Yablon. He was promoted to head of listed real estate at specialist Cohen & Steers on 1 January, having previously been head of US real estate at the group.

Fundamentals first

Yablon’s approach is to look at the fundamentals, and find Reits that are undervalued based on those metrics. He says: “We want to deliver better risk-adjusted returns than private real estate to the end-investor, and do it in a way that has full daily liquidity.

“Cohen & Steers aims to take a different view on the future supply and demand of commercial real estate for different property types in different markets. With that analysis, we look at potential occupancy and rental growth, and then we own what we think is cheap based on that analysis.

“When we take a more positive view of rental growth in a particular building, property type or market, it will translate into us having a higher valuation for those companies’ assets, and therefore for that company as a whole. And then in our model, it will look cheap.”

Read the rest of this article in the December issue of Portfolio Adviser magazine

Analysts at the firm identified the £1bn TR Property Investment Trust as a compelling option for investors looking to maximise total returns, bestowing it an AA rating.

By investing in property across Europe, manager Marcus Phayre-Mudge has generated a total return of around 260.4% since taking charge in 2011.

See also: J.P. Morgan proposes wind-down plan for Global Core Assets trust

Yet performance has taken a downturn in recent years, with its share price falling 28.1% since its peak in late 2021.

Nevertheless, researchers at Square Mile commended Phayre-Mudge’s “proven ability in identifying undervalued assets with the potential to benefit from macroeconomic tailwinds,” noting that now might be an appealing time to consider the trust before performance recovers.

“It is an attractive option for investors seeking pan-European listed real estate exposure with the added diversification of a modest allocation to direct UK commercial property,” they added.

See also: Home REIT repays Scottish Widows loan

Alternatively, Square Mile also highlighted the Legal & General Global Real Estate Dividend Index fund as another attractive way to bolster portfolio returns via the property.

This £991m fund provides more of a global exposure to the asset class by tracking the FTSE EPRA Nareit Developed Dividend Plus index, which consists of 300 REITs and real estate companies with one-year forecasted dividend yields of over 2%.

Most (68.4%) of these companies are concentrated in the US, but the remaining portfolio is diversified across the likes of Japan (7.3%), the UK (4.2%), and Australia (3.8%). Since tracking this index in 2016, the fund has made a return of 13.2%.

Analysts at Square Mile said the tracker fund deserved its new ‘recommended’ rating because of its “competitive price,” with the fund costing investors an ongoing charges figure of just 0.2%.

Which particular asset classes and strategies do you anticipate your intermediary clients focusing on in 2025?

At HSBC Asset Management (HSBC AM), we have a multi-strategy approach to managing solutions for intermediary clients in the UK. We have seen strong interest from UK Discretionary Fund Management clients for our ETF and Index range in Model Portfolio Service portfolios as investors are increasingly looking for more flexibility and choice. This is a growth trend continuing into 2025 and have recently launched the HSBC S&P 500 Equal Weight Equity Index fund for this client segment. 

In addition to passives, we’ve also seen growing interest and flows into active management, especially in asset classes such as Healthcare, India Equity and Fixed Income, Global Infrastructure and Global Equities. We have also transitioned our existing Global Property fund into a Global Listed Real Asset strategy solution for the UK market reflecting client demand which is another area of growth for 2025 in our view. Our multi-asset platform continues to remain a core part of our offering for clients in the UK wholesale segment, with more intermediaries outsourcing investment capabilities to model portfolio services providers it demonstrates that multi-asset is set to remain a core component of the market. We now manage over $157bn for clients globally in Multi Asset solutions and are seeing continued support from UK intermediaries within the HSBC World Selection and Global Strategy ranges.

See also: Track to the Future – with William Blair’s Tom Ross

Should end-investors – and, by association, asset managers – be thinking beyond equity and bond investments? Towards what?

Clients are already investing beyond pure equity and fixed income products and we have seen increasing interest in our World Selection multi-asset range. This range has exposure to a global infrastructure strategy run by our alternatives business which demonstrates how private markets are set to become increasingly important for end-investors and asset managers going forward. In time we’d like to see greater semi and illiquid strategies playing a broader diversification role within asset allocation models for end investor’s portfolios. However, challenges remain in supporting access to the space among intermediaries such as client suitability and operational factors, as well as UK fund platforms not currently being able to hold such investment strategies.  

In addition, research from the Investment Association (IA) has highlighted the importance of considering a wider range of asset classes in the current market environment. Monthly data published by the IA has revealed a wide array of best-selling asset classes among retail investors over the past year, ranging from government bonds to money market funds and global equities. This highly diversified support for a range of different investments is a trend that we expect to see continue into 2025.

To what extent do private assets and markets fit into your thinking? What are the currents pros and cons for investors?

HSBC AM’s alternatives business is a core area of growth for the UK, and we currently manage $71bn across diversified capabilities such as hedges funds, private markets, real estate, direct lending, infrastructure debt, listed infrastructure, energy transition and venture capital. 

One of the primary challenges for individual investors regarding private markets currently is the difficulty that many have in accessing the space outside of a multi asset strategy, rooted partly in the operational plumbing underpinning the UK IFA market such as UK fund platforms that still currently require daily liquidity. It is also important to consider the complexity of these assets from a client suitability perspective, which potentially leaves room for more work to make them suitable for UK retail investors, as well as regulatory factors which would need to be addressed to support wider access. That said, the development of Long-Term Asset Funds is aiming in the right direction. Broadly, however, we see the move towards private markets as the direction of travel for the industry and expect that it is only a matter of time.

Given client and regulatory pressure on charges, how is your business delivering value for money to intermediaries and end-clients?

We continue to see strong support among intermediaries and end-clients for our Global Strategy Portfolios. This is a globally diversified multi-asset solution offering an active allocation proposition with a passive fulfilment. It is one of our key propositions for the UK intermediary market and has offered great value for investors, consistently delivering strong returns and performing well against Assessment of Value measures while maintaining a focus on cost.

See also: Track to the Future – with Fidante’s Adam Brown

How much of your distribution is currently oriented towards climate change, net zero, biodiversity and other segments of sustainable investing? How do you see this approach to investing evolving?

Sustainable investing continues to represent a key element of our strategy at HSBC Asset Management. We manage over $70bn in ESG and sustainable strategies as of the end of last year and launched ten new ESG strategies globally throughout 2023.  One area which bears a lot of meaning for me is how we, as an industry, tackle social inequality. HSBC Asset Management gave me the opportunity of launching the social mobility programme a couple of years ago, and while all areas are important such as climate change and biodiversity, we do feel social inequality needs greater exposure.

How are you now balancing face-to-face and virtual distribution? In a similar vein, how are you balancing working from home and in the office?

The intermediary sector is an incredibly resilient part of the financial services industry that provide a significant level of financial advice for retail investors. Speaking with many advisers through and following the pandemic, a high percentage returned to operational normality rather quickly i.e. moving back to being in the office five days a week before other parts of the industry.  I find that it can be easy to gauge the health of the intermediary market by the number of industry events companies approaching us to participate at conferences, which has gone through the roof again in 2024! There’s a new proposal landing on my desk every week.

Personally, I am usually in the office around three to four days a week but it does depend on when I am seeing clients across Northern Europe, as well as the UK, so it can vary from week to week. While it’s important to meet with clients or colleagues in person, we do need a healthy balance of virtual engagement, with the most important factor being that we engage with our clients in a way that they prefer.  Call me old fashioned but I do still like putting on a suit and going into the office.

What do you do outside of work?

Like most parents my kids occupy most of my time one way or another. I’ve had the pleasure of being a 5am poolside swimming parent with my daughter through to spending most of my weekends away with my son who’s competed in motorsport championships across the UAE, Europe and more recently the UK.  One of my own activities which allows me headspace is walking my dogs.

See also: Track to the Future – with Federated Hermes’ Clive Selman

What is the most extraordinary thing you have seen in your life?

Seeing my two children come into the world holds the top spot but that’s an obvious statement! But in my previous life I think I must have been a structural engineer. I joined HSBC Asset Management in 2005 in a global role and remember watching the start of the site excavation for the Burj Khalifa in Dubai. In 2007 I had the pleasure of moving to Dubai with HSBC AM and witnessed the construction of the building which was one of the most amazing things I’ve seen. Even seeing the building in recent times brings a smile to my face. 

Looking a little further ahead, in what ways do you see the asset management sector evolving over the next few years?

As mentioned earlier, we anticipate private markets will likely play a key role in the evolution of the asset management sector in the years ahead. We are committed to this part of the market. So far, the growth has been more institutional, with pension and insurance funds moving into the market, but there is certainly a growing interest among intermediaries who want to develop a stronger understanding of how their clients can access the space.   

In a stock exchange announcement this morning (28 November), the trust said it has made the final payment of £28.6m to the lender following the completion of outstanding property sales. Home REIT had been expected to pay down the debt by the end of the year.

In July, the trust proposed a managed wind-down after it was unable to re-finance its then £114.6m remaining debt.

See also: St. James’s Place to exit property market after 20 years

Borrowings have been paid down through the sale of properties within the Home REIT portfolio.

Michael O’Donnell, non-executive chair of Home REIT, said: “The full repayment of the debt facility with Scottish Widows is a significant step forward for the Company as we deliver the managed wind down strategy.

“The company is now focused upon realising its remaining property assets and on the subsequent return of capital to shareholders in due course.”

The funds, launched in 2004, manage around £1.8bn property assets.

In a statement, SJP said that the decision comes after a challenging period for the sector as a whole.

See also: Amber Infrastructure’s Morgan: Why infrastructure trusts entry economics are attractive

Since suspending the funds last year, SJP said it has continued to assess the property market, citing caution from investors around property funds following changes to working patterns following the Covid pandemic, which has led to a reduced demand for office space.

Meanwhile, the firm pointed to proposed regulatory changes which may result in the introduction of notice periods for funds holding more illiquid assets, with the wealth manager suggesting the changes could deter investors from investing in open-ended property funds further.

The mandates were gated on 20 October last year, to avoid having to sell properties below their fair market value to generate cash.

Tom Beal, group investment director at St. James’s Place, said: “Since we launched our property funds in 2004, the marketplace and our investment processes have evolved substantially, with the pandemic significantly impacting the wider property market.

“Following the suspension of the fund in October 2023, we have reviewed all options available to us and concluded that the best course of action is to wind down the funds. Doing so over a period of time will allow us to maximise value for our clients.”

See also: Open-ended property funds: Is the future hybrid?

Invesco Global Real Estate has been appointed to manage the wind down of the funds, with the firm expecting the process to take two years to sell the majority of assets.

The closure is the latest in a wave of recent wind downs in the open-ended property sector.

In October last year, M&G announced its intention to shutter its then £565m open-ended UK property portfolio due to “declining interest in open-ended daily dealing property strategies” from UK retail investors.

A day later, Canada Life shuttered its PAIF after assets under management more than halved from £254m to £102m, leaving it “no longer commercially viable”.

While China enjoyed its heyday, the S&P 500 gained just over 2% for the month and the FTSE 100 dropped 1%. Across funds, China was the best-performing sector with an average 16.3% return, with Asia Pacific ex Japan following at 5.3% and global emerging markets at 4.3%.  

Ben Yearsley, investment director at Fairview Investing, said: “China wants to be the dominant world power and succeeded in the fund world in September. It will be interesting to see if this is the start of a bull market or a dead cat bounce – the answer may depend on whether more spending taps are turned on by Beijing.”

By fund, the Redwheel China Equity fund went to the top of the table, with a 30.2% return. It was closely followed by Matthews China, at 30.1%, and FSSA All China, at 27.1%. All of the top ten performers of the month, which were exclusively China funds, returned above 20%.

See also: Is China at a turning point, or will it disappoint yet again?

“Having looked at markets for 25 years now I don’t remember a month where one region or country has been so dominant,” Yearsley said.

“The fascinating thing about China is that even a few short weeks ago many commentators were still writing it off as an investment opportunity. Interestingly one fund group, M&G, launched a new China fund only a few weeks ago. It’s dangerous writing whole markets off.”

See also: M&G launches China fund for David Perrett

Though the top of the table was uniform, Yearsley called those at the bottom of the table “a mixed affair”. Liontrust Russia fell the furthest, at 8.6%. TM Crux UK Smaller Companies was not far behind, dropping 8.2%, while WS Guinness Global Energy, decreased by 8%.

“The only real theme was UK micro-cap funds, especially those exposed to the Aim market. Rumours abound that the chancellor, Rachel Reeves, will remove the IHT break from Aim share – this would be a devastating blow to the junior market and at complete odds with the Labour party promise to be pro-growth,” Yearsley said.

“Energy funds also featured near the foot with the oil price falling near the $70 mark. From a sector view Healthcare was the worst performer dropping over 4% followed by the three UK sectors.”

China once again took the top spot with investment trusts, and the three China-focused investment trusts had the best returns, made up of the JP Morgan China Growth & Income trust at 24.5%, Fidelity China Special Situations at 22.4%, and Baillie Gifford China Growth at 21.9%. By sector after China, the top returns belonged to property securities, property UK healthcare, property Europe, and property UK commercial.

“Interestingly the rest of the top five sectors were all property – base rate cuts and a taming of inflation has led to investors rediscovering property as an asset class at the same time as one of the risk modelling companies that many financial advisers use as removed property as an asset class,” Yearsley said.

It first proposed the closure in July when it was unable to re-finance the £114.6m of debt on its books, which it had already reduced from £220m. Earlier this month, shareholders voted almost unanimously in favor of selling the trust’s assets to pay off the remaining debt and optimize value if the trust is eventually wound down.

Proceeds from these latest sales total £36.9m, representing 15% of the trust’s overall portfolio by value. Since August last year, Home REIT has sold 1,208 properties and exchanged on a further 293, bringing in £216.9m in total.

Not all properties  in the most recent batch of sales sold for the price Home REIT had been hoping, but a statement from the trust this morning (30 September) said it was a step in the right direction.

“Whilst positive and negative variations between the sales price at auction and draft valuations are to be anticipated the board remain encouraged that in aggregate the auction results continue to be in line with the draft valuations with strong results for the company’s higher value properties, particularly in London where results have been strong, and sales prices have exceeded draft valuations,” it said.

Home REIT had a strong start when it initially entered the market as one of the largest investment trust initial public offerings of 2020, raising £240m.

But uncertainty over the trust’s future came to light in 2023 following a series of issues over the 18 months, including the collapse of its rent roll, delayed annual results leading to de-listing from FTSE indexes, and accusations from shareholders over a lack of adherence to its investment policy.

With rates normalising, the European real estate sector’s debt sustainability has worsened. Most companies in the sector established their capital structures during the low interest rate environment.

As debt matures and is refinanced at higher rates, unless there is deleveraging, funds from operations (FFO) will be consumed by interest payments, leaving minimal value for equity owners and sometimes insufficient asset coverage for bondholders.

But despite these concerns, S&P continues to rate some highly levered structures as mid-to-high BBB, signalling low credit risk to bondholders. Why?

An overreliance on flawed credit metrics

The European real estate industry has long relied on the Loan-to-Value (LTV) metric to assess a company’s leverage. S&P has its own version of LTV: the Debt-to-Debt-plus-Equity ratio (D/(D+E)). This metric is problematic for three reasons:

• The IFRS leverage illusion – In a low interest rate environment, property valuations soar, artificially boosting the book value of equity, because under IFRS’ Fair Value Accounting, gains or losses on property valuation are recorded as an item in the income statement, which then flows into book value. One can therefore raise more debt (often to remunerate shareholders) while maintaining a stable D/(D+E). As a result, there has been an illusion of stable leverage in the sector even as Net Debt to EBITDA increased by +2x to +4x during the low-rates period.

• Not all equity is created equal – This S&P ratio does not account for capital structure differences, such as minorities or an outsized hybrid capital layer. Minority and hybrid coupon payments ultimately consumes cash flow. S&P generally adjusts for large minority interests by tightening downgrade threshold ratios but is conspicuously not doing so for European real estate issuers.

• Reliance on potentially flawed valuation assumptions – As described above, due to Fair Value Accounting, the D/(D+E) ratio is influenced by valuation assumptions, which can be opportunistic. In our view, cash-flow-based leverage metrics, unaffected by valuations, are therefore superior measures of leverage.

How S&P assesses financial risk for European real estate

S&P uses a corporate criteria framework to provide ratings. It first evaluates Business and Financial Risk Profiles. Modifiers such as diversification, liquidity or management/governance are then added, resulting in a stand-alone credit profile.

For real estate, S&P assesses Financial Risk using three core ratios (Debt/EBITDA, EBITDA/Interest Coverage Ratio (ICR), Fixed-Charge Coverage) and two supplemental ratios (FFO/Debt, and D/(D+E)).

Our analysis indicates that S&P has favoured the supplemental, but flawed, D/(D+E) ratio alongside the core EBITDA ICR to measure leverage in the sector. During the low-rate era, however, the EBITDA ICR underestimated leverage. As interest rates normalize, EBITDA after interest costs (a proxy for FFO) decreases substantially, revealing hidden leverage.

According to S&P’s methodology, the financial risk assessment using the EBITDA ICR metric would shift from “modest” to “aggressive” as the cost of debt increases from an all-in yield of 1.5% to 4.5%. But these warning signs are likely to come too late because S&P still relies on historical over forecasted ICR figures.

Regional and sectoral discrepancies expose typical agency problems

Tracking ratios since 2009 across European and U.S. real estate names reveals regional differences that suggest S&P’s criteria are loosely applied for certain European office-exposed credits. Our analysis reveals:

• Regional application variability – US REITs with “intermediate” Financial Risk have 5x to 9x Debt/EBITDA ratios and 8% to 15% FFO/Debt ratios. European office-exposed REITs with similar “intermediate” Financial Risk have ratios of 12x to 17x and 2% to 4%. This 2% to 4% FFO/Debt ratio is particularly concerning, given limited refinancing to date. We expect some European real estate companies to have negative FFO in the medium term. Unlike the investment grade credit market, which tends to rely more on ratings, European real estate stock prices suggest that equity investors recognise the cash flow leverage predicament.

• Sectoral application variability – Ex-offices, S&P’s financial risk assessment of European real estate names with 10x to 18x Debt/EBITDA ratios and 2% to 6% FFO/Debt ratios is usually “significant” or “aggressive.”

• Criteria loosening post-2021 – Despite higher capital costs leading to increased credit risk, downgrade thresholds have, counterintuitively, become more lenient.

How to better assess financial risk

We recommend using the FFO/Debt ratio. Cashflows remain key in assessing credit risk and debt sustainability, regardless of the sector. We also advocate looking at the composition of a company’s equity, stripping out minority and hybrid capital to assess the real “equity cushion,” which in certain cases is significantly worse than S&P’s D/(D+E) ratio suggests.

We encourage S&P to update its application of the criteria for the European real estate sector to better reflect cashflow leverage, given the structural change in the sector’s cost of capital. Ignoring this misrepresents credit risk and could be masking an agency problem reminiscent of those seen during the global financial crisis. Investors should recognise that credit risk has increased, and debt sustainability has worsened.

Consequently, spreads should not revert to pre-2022 levels relative to benchmarks, as this would fail to account for the heightened credit risk. Relying on S&P current ratings to build a case for mean reversion in spreads appears risky, especially given that spreads were previously supported by a bid from the ECB’s Corporate Sector Purchase Programme.

Tissot joins from Ofi Invest Real Estate, where she was a senior investment manager. She has also held positions at BNP Paribas Real Estate and Generali Real Estate, totalling a decade of investment experience.

See also: Aviva Investors creates dedicated VC and strategic capital desk

Tissot will be based in Paris and report to George Fraser-Harding, head of pan-European funds, Real Estate. In the role, she will aid in Aviva’s real estate expansion plans throughout the continent. Last month, the firm announced its first real estate transaction in the Swedish market.

“We are very pleased to welcome Kasia to Aviva Investors at a time when our European real estate strategy continues to grow,” Fraser-Harding said.

“Kasia’s experience in managing cross-border investments will be incredibly important, particularly as we continue to expand our portfolio into new regions where we see a great deal of growth potential and investment opportunities we believe can be additive in delivering long-term outcomes for investors.”

The investment company sold Bastion Point in Dover for £9.5m which, according to the board, is in-line with the asset’s June 2024 valuation but 4.8% below its March valuation. The asset had just over two years left on its occupational lease, while its sold price reflected an initial yield of 6.1%.

Mark Blyth, deputy fund manager of API, said: “This is the fifth asset sale that the company has completed this year, and the first since the shareholder vote to proceed with a managed wind down of the company.  As outlined in previous communications on the managed wind down strategy, the available proceeds will be used to pay down the company’s revolving credit facility.”

In March this year, API attempted to merge with Custodian Property Income REIT. However, this fell through due to a lack of support from shareholders, with just 60% of votes cast in favour of the merger, which came in 15 percentage points below the minimum 75% threshold.

In May, shareholders voted in favour of a managed wind-down at an Extraordinary General Meeting.

API is currently trading on a 24.1% discount to net asset value and is 31% geared. It currently has a dividend yield of 7.22%.

At the end of June, the property investment trust proposed a capital raising of £110.5m to pay back its £50m retail bond by the deadline and reduce its bank facilities, thereby avoiding liquidation. The capital would also provide £28.4m, which the Reit’s board said will “provide additional flexibility to fund selective capital expenditure on assets, which will enhance earnings in the near term and value in the mid to long-term”.

On the 18 July, shareholder approval was given for Regional Reit to consolidate its shares at a ratio of one consolidated share for every 10 ordinary shares – this was put in place at the end of last month. In addition to a successful £110.5m capital raise, a further £26m was secured, which Regional Reit’s board said will be used to further reduce debt. It added this means the company will have “greater headroom under the group’s covenants in such facilities and the LTV [loan-to-value] decreasing to 41% from 57% prior to the fund raising, in line with the company’s long-term target range.”

See also: Regional REIT considers new share offer at ‘material discount’ amid performance woes

At the end of last year, Regional Reit published its asset disposal plan in a bid to reduce its LTV to below 40%. At the end of 2023, the Reit’s LTV stood at 55.1%.

Now that the trust’s 4.5% retail bond has been repaid, the trust’s debt weighs in at £353m with a weighted average cost capital of 3.4%.

Stephen Inglis, CEO of London & Scottish Property Investment Management said: “On behalf of the board we would like to thank our shareholders for their continued support and participation in the fundraise, which has enabled the company to repay the retail bond in full and reduce our debt further to an LTV in line with our long-term target.

“Additionally, we have set aside further funds to make improvements and enhance the attractiveness and quality of core assets with the aim of growing rental income and reducing vacancy rates. We look forward to updating shareholders further on our continuing progress.”

The asset manager argues the real estate sector has now mostly repriced following the end of the era of cheap money.

Following the general election result, Abrdn says the UK’s perception among investors has plausibly shifted to being a “bastion of relative calm” amid a more complex global political environment.

Rolling annual returns for UK real estate are almost back to positive territory, while globally they remain down 5%, according to MSCI data to Q1 2024.

Abrdn has forecasted UK property total returns to average 8% per year over the next three years.

As a result, the firm has upgraded its investment view on real estate from underweight to neutral, while it is overweight on the residential, industrials and retail sub-sectors.

Meanwhile, Asia Pacific real estate is lagging the global cycle, due to China’s continued property woes and the Bank of Japan raising interest rates at a time when most developed markets are looking to cut.

See also: Choosing ‘picks and shovels’: Managers look beyond Nvidia for AI plays

The average yield on prime property in the UK and Europe is now at 5.7%, which Abrdn says represents an “appealing cashflow” when compared to yields on Eurozone and UK government bonds, which are currently at 3.1% and 4.1% respectively.

“We believe this real estate cycle is very different to previous ones, as rental income from property has not been challenged in the way it was before,” Anne Breen, global head of real estate at Abrdn, said.

“That means the recovery for future-fit buildings should be faster – boosted by lack of high-quality supply. 

“However, not all sectors are made equal. We particularly like residential, because of supply-demand imbalances; industrials and logistics – due to the need for modern warehousing to support global and local distribution; and some areas of retail that have benefitted from changes to the way we shop since the pandemic.

“We are more cautious than most on offices. In our view, a small proportion of the market (i.e. prime central locations) will do very well, but for a large part they face higher tenant churn and more capital expenditure requirements – with large pools of global capital looking to reduce overall exposure to the sector. We therefore advocate a very cautious and selective approach.”

See also: AllianzGI’s Maisonneuve: Why China still has a place in portfolios despite tariff threat